Regulation of Financial Accounting and Reporting: the Pro-Regulation Perspective

Regulation is defined as a set of rules that is designed to control and govern conduct by authority (Deegan 2009, p.59). On the basis of this definition, Deegan (2009, p.59) has defined regulations relating to financial accounting as rules that are developed by independent authoritative body to govern the preparation of financial statements which are accounting standards. Since decades ago, there have been arguments for and against the existence of accounting regulations. With a stance of pro-regulation, this essay is going to examine the reasons that financial accounting and reporting should be regulated and the merits of accounting regulations.

Firstly, financial reports are normally prepared by the management of the company who are not the owners but are involved in managing the company. They possess more information than the shareholders and stakeholders so information asymmetry arises between them. Without regulation, even though management might disclose relevant accounting information voluntarily in order to get funding, the degree of credibility and completeness of information is unclear. According to the analysis of Lang and Lundholm, the accounting disclosures specifically for firms that make equity offerings has a significant increase within the six months before the offering occurs particularly in those categories the firm has discretion (cited in Healy and Palepu 2001, p.421). It shows that the business might not disclose all relevant information to users or is withholding information unless the disclosures is for their benefits, which posts a question of the reliability of voluntary disclosures. Furthermore, the existence of asymmetric information will lead to inequality of opportunity and returns among investors. According to Schroeder (cited in Lee, Rosenthal and Gleason 2004, p.79), before Regulation Fair Disclosure imposed in America, Wall Street brokerage companies and their best customers managed to reap trading profits before most...

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...REGULATIONS OF FINANCIALREPORTING IN NIGERIA
INTRODUCTION
Regulation of accounting information is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them take meaningful decisions regarding their interest in a reporting entity.
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...CHAPTER 2: REGULATION IN FINANCIALACCOUNTING
Chapter 2
regulation in Financialaccounting
LEARNING OUTCOMES
Upon completion of this chapter you should be able to understand:
•
The difference between management and financialaccounting.
•
Why accountingregulations are important and required.
•
The need for and the structure of professional regulation, company law, stock exchange
legislation and EU Directives.
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How the different aspects of regulation work together and complement each other.
•
The process through which an accounting standard comes into being.
REVISION RESOURCES
EXAM QUESTIONS: Sample and Past papers are available from the website of Accounting
Technicians Ireland and are essential aids when studying Advanced FinancialAccounting topics.
7
Chapter 2 : Regulation in FinancialAccounting
2.1
Advanced FinancialAccounting
the FunCtion oF FinanCialaCCounting and reporting
The International Accounting Standards Board (IASB) in their Conceptual Framework for FinancialReporting state that ‘the objective of general purpose...

...AccountingRegulation
With the recent accounting discrepancies that have taken place in some of America’s largest and well known corporations greater importance is being placed on the creation and monitoring of financial reports. Some of these organizations which regulate how financial reports and compiled are private, given a charter by a federal agency, others were born from the creation of new laws and regulations, some are state agencies, and many more are private organizations made up of academics and certified public accountants who altruistically want to improve ethics in one’s field of accountancy. These organizations include the FinancialAccounting Standards Board (FASB), the Public Company Accounting Oversight Board (PCAOB), the Securities and Exchange Commission (SEC), and the International Accounting Standards Board (IASB).
Companies which operate within the United States must compile financial reports within the guidelines set forth by the (SEC) and the (FASB); the (FASB) ensures that all companies focus on the characteristics of relevance and reliability when generating financial reports while staying within the guidelines of the Generally Accepted Accounting Principles (GAAP). When companies do not follow these guidelines they can be sanctioned by the (SEC) (Facts about FASB,...

...Creditors look for the financial outcomes of the firm to see the soundness of firm. They want the company to pay them timely and with full amount. Customers want quality goods and fair prices charged for those products. Vendors look for a long term relationship with the company as they are interested in making continuous sales to a particular part. Community living around the areas in which the company is serving has interest in the job creation and fair operations by the company (Epstein, 2010).
1.2)
The financial reports of the company are extremely important in the sense that they tell all the stakeholders about the financial soundness of the company. The role of a regulatory authority becomes very important in this regard as it is responsible for keeping check and balance on the credibility of the information provided by a company in its financial statements. The company can change some important parts of its financial statements and attempt to misrepresent its financial position in eyes of stakeholders to catch investment and other related benefits. The Security Exchange Commission (SEC) is the body which keeps a closer eye on the financial representations of every company. It ensures that each and every firm is following its prescribed rules regarding the disclosure requirements under the Company Act 2006 (Stickney, 2009).
1.3)
The financial statements of...